LATEST CORELOGIC ECON TWEETS

U.S. Housing Policy Outlook: July 2017

CoreLogic Update on Mortgage Fraud Activity

Recently, we released our first quarter CoreLogic National Fraud Risk Index and, as we expected, the index hit a new high of 132. This was up from 122 in the fourth quarter and 113 a year ago.

Keep in mind, the index is relatively new… it was started in 2010, after the high risk levels that contributed to the mortgage crisis. So today’s heightened number doesn’t necessarily mean that we’re seeing a lot more fraud. What it does show, however, is that conditions are present for fraud to grow.

The shift from a refi to a more traditional purchase market is a big driver of the change in the index. That’s because you have more moving parts and players in a purchase transaction and more opportunities for financial gain…and for fraud.

Housing affordability is another factor. Rising home prices and bidding wars mean that buyers have to stretch in order to qualify for a loan. We’re seeing the early signs of this in the percentages of applicants that are reporting income that is high relative for their area. Also, the higher debt-to-income ratios that we’re seeing suggest that applicants are at the maximums that they qualify for.

These conditions historically have supported fraud for housing schemes.

Speaking of fraud schemes, we’re hearing about a new one and the return of an old one.

The new scheme involves reverse occupancy or investment income misrepresentation. Here’s the way it works: the applicant says that he or she intends to buy a property as an investment and rent it out. The future rental income is used to qualify the borrower. But the borrower doesn’t rent it and moves in instead. This scheme is gaining traction in New York and other large metro areas, like Los Angeles.

The old scheme, which appears to be making a comeback, is aimed at out-of-state investors, usually from high-cost states. Home flippers pitch low-cost, rust-belt properties—often priced under $100,000. The flippers try to get investors to buy sight unseen and promise to manage the properties for them. Of course they dangle the prospect of very high returns.